[2012] KEHC 3633 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI LAW COURTS)

CIVIL CASE 245 OF 2012

ADCOCK INGRAM EAST AFRICA LIMITED............................................PLAINTIFF/RESPONDENT

VERSUS

SURGILINKS LIMITED...................................................................................DEFENDANT/APPLICANT

RULING

1. On 3rd May, 2012 the defendant/applicant filed an application under Section 6 of the Arbitration Act, 1995 and Rule 2 of the Arbitration Rules, 1997seeking an order to stay proceedings in this suit and refer the dispute between the parties to arbitration.

2. The application was supported by an affidavit sworn by Deepak Jitendra Kothari,a director of the defendant company.

3. He stated that on or about the 1st day of March, 2009 the plaintiff and the defendant entered into a distributorship agreement (hereinafter referred to as “the agreement”), for the distribution of the plaintiff’s products in the Kenyan market. Clauses 16. 2 and 16. 3 of the agreement provided that any differences that would arise during the life of the agreement would be freely discussed between the parties and solved amicably failing which parties would refer them to arbitration.

4. He went on to state that the plaintiff’s and the defendant’s representatives met on 23rd March, 2012 in an effort to resolve a dispute that had arisen but were unable to agree and therefore the next logical step was to refer the matter to arbitration in terms of clause 16. 3 of the agreement.

5. However, the plaintiff filed the present suit in court and sought a mandatory injunction to compel the defendant to pay a sum of Kshs.82,787,002. 15 within fifteen days. The suit was filed on 25th April, 2012.

6. Mr. Kothari further stated that the plaintiff’s move was bad in law and the court has no jurisdiction in a matter otherwise reserved for arbitration.

7. In response the plaintiff filed grounds of opposition as follows:

“1. The defendant has breached its obligations under the distributorship agreement by failing to pay the undisputed sum of Kshs.90,895,617. 29 owed to the plaintiff

2. Acknowledgements of the debt have been made to the plaintiff and the amount in dispute that is subject to negotiation and arbitration is less than 10% of the total debt (see paragraphs 9 to 10 of the supporting affidavit of Antony Kanyatta).

3. The defendant is stopped from reneging on the admissions made in HCCC No. 118 of 2012 Surgilinks Limited vs Adcock Ingram East Africa Limited where it admitted that the plaintiff was entitled to be paid the sale proceeds that were due.

4. It is against public policy for a matter to be referred to arbitration when there is no dispute as to the amount due or a party admits liability (sic). It would be unconstitutional an abuse of the court process for a party to be burdened with astronomical costs and delay by being asked to refer a matter to arbitration when there is no dispute or there has been admission of liability (sic).

5. Section 26 of the civil Procedure Act allows the court to award interest at court rates. The plaintiff has been kept out of pocket and seeks interest at court rates. This cannot be a dispute to go to arbitration and the issue of interest is only sought from 1st May, 2012. No interest is sought for amounts that were lawfully due prior to 1st May, 2012.

6. There is no dispute that the defendant is lawfully is entitled to be paid a commission in accordance with the distribution agreement. This is not a dispute to go to arbitration.

7. The plaintiff is willing to go to arbitration on the disputed amounts on condition that it is clear what evidence supports the purported disputed sum of Kshs.6,465,754. 19. ”

8. Mr. Gichuhi for the plaintiff and Mr. Bowry for the defendant agreed by consent to file their respective submissions and rely on the same entirely for disposal of this application which they did.

9. I have carefully perused the submissions on record.

10. Section 6 of the Arbitration Act, 1995 states as follows:

“(1).A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds –

(a)that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.

(2) Proceedings before the court shall not be continued after an application under subsection (1) has been made and the matter remains undetermined.

(3) If the court declines to stay legal proceedings, any provision of the arbitration agreement to the effect that an award is a condition precedent to the bringing of legal proceedings in respect of any matter is of no effect in relation to those proceedings.”

11. It is not in dispute that the distributorship agreement contains an arbitration clause. According to clause 16. 3 any dispute or difference between the parties arising out of or in connection with the agreement that cannot be amicably resolved between the parties ought to be referred to arbitration.

12. I would agree with the defendant that it is an abuse of court process for parties to refer their disputes to court if the agreement that gives rise to the proceedings contains an arbitration clause. However, if a certain portion of a claim is not in dispute it is improper to refer the entire claim to arbitration. Before a court can order parties to go to arbitration it has to be satisfied that there is indeed a dispute over the claim in issue.

13. In HCCC No. 118 of 2012 Surgilinks Limited vs. Adcock Ingram East Africa Limited, the defendant sought an injunction to restrain the defendant from removing its stock and/or calling for monies that it was holding to the account of the defendant pursuant to the distribution agreement pending hearing and determination of the suit. The defendant therein was demanding a sum of Kshs.87,814,002/=.

14. The plaintiff through their advocate disputed the said sum but admitted that the outstanding amount due and payable was in the region of Kshs.65 million.

15. The plaintiff herein has tabulated the amount that was due upto 1st June, 2012 and the same amounts to Kshs.97,361,371. 48 out of which the defendant’s commission is Kshs.23,756,642. 50.

16. The defendant has not shown why it has refused to make payment of the undisputed amount, which is not less than Kshs.65 million as expressly admitted. It would therefore be unreasonable to refer the entire claim to arbitration.

17. Consequently, I order that the defendant pays to the plaintiff a sum of Kshs.65 millionforthwith. With regard to the remaining amount of the plaintiff’s claim, there will be stay of proceedings in this suit and the claim shall be referred to arbitration. The defendant shall bear the costs of this application.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 18TH DAY OF JUNE, 2012.

D. MUSINGA

JUDGE

In the presence of:

Muriithi – Court Clerk

Mr. Karungu for Plaintiff

Mr. Bowry for Defendant